- A balance in the economy - A state of the world where economic forces are balanced - The point at which quantity demanded and quantity supplied are equal
-Equilibrium Price is the price that balances quantity supplied and quantity demanded. As shown above, the equilibrium price the the point where the supply and demand curve intersects.
-Equilibrium Quantity is the point when the quantity supplied and quantity demanded are equal. This as well is the point when the supply and demand curve intersects.
-At equilibrium both producers and consumers are satisfied with the set price.
REAL LIFE EXAMPLE: http://www.dmwmedia.com/news/2011/01/19/apple-posts-record-profit-ipad-sales-surpass-projections
-An example of equilibrium is the iPad. There was a very large demand for the iPad when it was first released. However, Apple was not able to produce enough iPads to meet the demand. Since the demand was so much higher than expected, the equilibrium shifted because there was a greater quantity demanded. "Apple posted a record profit of $6 billion in the last three months of 2010" (Hefflinger). This shows that demand was clearly high because they made numerous amounts of money. "The iTunes Store also generated over $1.1 billion in revenues during the quarter." (Heffflinger) The iTunes Store serves as a complimentary good to the iPad because it also generated an immense amount of revenue as well. "17 million media tablets were shipped worldwide in 2010" (Hefflinger). Supply was very high as well, but demand was so high that they weren't necessarily able to meet all of it, allowing for an equilibrium shift.
Three easy steps to analyze changes in equilibrium: so easy... a monkey could do it ;) ooh ooh ah ah
1) Decide whether the event shifts the supply or demand curve (or both)
2) Decide whether the curve shifts to the left or to the right
3) Use the supply and demand diagram to see how the shift affects equilibrium price and quantity
D-Shift_New_Equilibrium.gif
SShift-New_Equilibrium.gif
-Increase in demand will increase Pe and Qe(1st graph) -Increase in Supply leads to decrease in Pe and increase in Qe (2nd graph)
-Decrease in demand will increase Pe and Qe(1st graph) -Decrease in Supply leads to increase in Pe and decrease in Qe (2nd graph)
When quantity demanded is less than quantity supplied, a surplus results.
- Qd < Qs
When quantity demanded is greater than quantity supplied, a shortage results
- Qd > Qs
Price Floors are a set minimum price put in place on a product or service by the government.
- Price floors are set above equilibrium
- Increases consumer surplus
- Example: minimum wage.
Price Ceiling is a set maximum price put in place on a product or service by the government.
- Price ceilings are set below equilibrium
- Increases producers surplus
- Example: Rent control in New York City. Government set max amount on price per square foot in apartments.
- A balance in the economy
- A state of the world where economic forces are balanced
- The point at which quantity demanded and quantity supplied are equal
-Equilibrium Price is the price that balances quantity supplied and quantity demanded. As shown above, the equilibrium price the the point where the supply and demand curve intersects.
-Equilibrium Quantity is the point when the quantity supplied and quantity demanded are equal. This as well is the point when the supply and demand curve intersects.
-At equilibrium both producers and consumers are satisfied with the set price.
REAL LIFE EXAMPLE:
http://www.dmwmedia.com/news/2011/01/19/apple-posts-record-profit-ipad-sales-surpass-projections
-An example of equilibrium is the iPad. There was a very large demand for the iPad when it was first released. However, Apple was not able to produce enough iPads to meet the demand. Since the demand was so much higher than expected, the equilibrium shifted because there was a greater quantity demanded. "Apple posted a record profit of $6 billion in the last three months of 2010" (Hefflinger). This shows that demand was clearly high because they made numerous amounts of money. "The iTunes Store also generated over $1.1 billion in revenues during the quarter." (Heffflinger) The iTunes Store serves as a complimentary good to the iPad because it also generated an immense amount of revenue as well. " 17 million media tablets were shipped worldwide in 2010" (Hefflinger). Supply was very high as well, but demand was so high that they weren't necessarily able to meet all of it, allowing for an equilibrium shift.
Three easy steps to analyze changes in equilibrium: so easy... a monkey could do it ;) ooh ooh ah ah
1) Decide whether the event shifts the supply or demand curve (or both)
2) Decide whether the curve shifts to the left or to the right
3) Use the supply and demand diagram to see how the shift affects equilibrium price and quantity
-Increase in demand will increase Pe and Qe(1st graph) -Increase in Supply leads to decrease in Pe and increase in Qe (2nd graph)
-Decrease in demand will increase Pe and Qe(1st graph) -Decrease in Supply leads to increase in Pe and decrease in Qe (2nd graph)
When quantity demanded is less than quantity supplied, a surplus results.
- Qd < Qs
When quantity demanded is greater than quantity supplied, a shortage results
- Qd > Qs
Price Floors are a set minimum price put in place on a product or service by the government.
- Price floors are set above equilibrium
- Increases consumer surplus
- Example: minimum wage.
Price Ceiling is a set maximum price put in place on a product or service by the government.
- Price ceilings are set below equilibrium
- Increases producers surplus
- Example: Rent control in New York City. Government set max amount on price per square foot in apartments.
http://www.youtube.com/watch?v=sLkUlcsBy0g